Federated's Hill Says Mind the Gap
Federated Hermes' posted a brief video with Head of Government Liquidity Susan Hill entitled, "Mind the Gap." They ask, "Is the Fed expected to keep rates elevated even if inflation normalizes?" Hill comments, "At Jackson Hole, Chair Powell said that the Fed's going to keep at it until the job is done. And what we think that means is that the Fed will continue to tighten monetary policy until they are really confident that inflation is moving in the right direction. However, because monetary policy works with the lag and because inflation is a lagging indicator, we think that once the inflation percentages become close to 2%, that the Fed will move back to a more neutral stance at that time." Hill commented on Jackson Hole and the Fed in a previous video entitled, "The Battle Continues." She says, "We got from that address that the Fed is not going to give up on the fight against inflation. It's not going to stop too soon and that rates should remain higher as a result of the Fed's resolve. So we went into the meeting expecting that the Fed would take certain action and we came out thinking that they perhaps will go a little bit higher in terms of their Fed target, a little longer in terms of their tightening cycle and stay there longer once they're done. We also got the sense that the Fed Chairman was not necessarily concerned about, at least yet, about the impact on economic growth, but rather it really is the inflation demon that they're fighting today." Finally, Federated also wrote, "The Place to Be: Cash has become a compelling asset class," recently. Money Market CIO Deborah Cunningham tells us, "As stocks and bonds struggle anew, liquidity investments no longer just offer shelter from volatility or serve as a base camp for future allocation. Rather, they have been providing a growing return. The Crane 100 Money Fund Index (the average of the 7-day yields of the 100 largest taxable money market funds) hit 2% on the last day of August, while equities retreat, Treasury yields rise and deposit-product interest rates lag."
